KHALED AL KHAWALDEH (ABU DHABI)
Experts say a new landmark bankruptcy law that will come into effect later this year will provide a framework to help companies battle an increasingly volatile global economic climate characterised by rising interest rates and inflation.
Speaking to the Financial Restructuring MENA Conference in Abu Dhabi, legal specialists from the UAE said the law would help many companies survive and restructure their finances before it's too late, whilst also bolstering stability in an uncertain economic time.
The Federal Law Decree No. (51) of 2023 was published on 31 October last year and set to be effective from the 1st of May 2024, it will repeal Federal Law Decree No. 9 of 2016 on bankruptcy. However, all regulations and decisions that were issued to implement the old law will continue to apply until they are replaced by regulations necessary to implement the provisions of the new law.
Legal experts say it will help streamline the bankruptcy process to provide indebted companies and creditors like banks with better options in times of financial struggle.
According to lawyer Michael Rainey, Partner at King & Spalding, the law will create a more equitable environment for companies and banks alike, with a more structured procedure that allows multiple layers of deliberation before insolvency. Michael says the provisions for preventative settlement, a legal process which gives indebted companies the ability to settle disputes with their creditors before they are declared bankrupt will give companies some breathing room before they are liquidated and give creditors better opportunities to retain value.
Michael also highlighted provisions around restructuring, that will create a fairer framework for getting companies back on track. He said the bankruptcy law will also allow for a more structured approach to liquidation that will ensure a more equitable settlement for all shareholders, investors and creditors.
"We have great hope that with the new bankruptcy law the avenue of court will be used more", Bruno Navaro, Managing Director of Ipso Facto Ltd, said at the conference held at the Abu Dhabi Global Markets HQ on Monday.
"We have seen a confirmation that bankruptcy law is taking centre place."
Bruno expressed his belief that a more robust legislature would contribute to the establishment of a fairer scenario for everyone. He acknowledged that reforms to the law had been overdue and emphasised the significance of processing as many use cases through the system as possible.
"The main problem we have witnessed in the region is a lack of compliance by banks, that selfish approach in fact depletes value", he said.
"I'm glad to talk about it, but I'm tired of talking about it, we need to do it, we need to see case studies and filings go through the system so that we can test it."
Omar Rahman, Chief Legal Officer of Dubai Islamic Bank, acknowledged Bruno's comments but said attitudes in the sector were changing, with many banks taking a more cooperative approach. He said the survival of firms like NMC Healthcare, which was restructured after falling into administration for almost 2 years, proved that "good businesses" could be saved, and that banks were cooperating in saving them.
"The local banks are on a journey, we started two years ago where banks where more individualistic but are moving from that to a more collegial approach", he said.
Legal expert, Jody Waugh, Managing Partner at Al Tamimi & Companys, hailed the reform but said there was still work to do around ensuring transparency, and clarifying the roles that directors will have under the new law. Moreover, he said more clarity was needed on the impacts of cross border and group insolvencies.
"Preventative settlement is the biggest change and the most positive change", he told the conference.